Equity savings funds: Shine for retirees

Think of equity saving funds as a balanced mix—about a third of the money each in equity, debt and arbitrage opportunities (a strategy where the fund seeks to profit from temporary price differences between related securities in different markets). This set-up lets you tap into the growth of equities while cushioning you from major market drops. What's more, with over 65 per cent of the money in equity and arbitrage, these funds qualify for equity taxation, giving you growth potential with steady debt-like stability, all wrapped up in a tax-friendly package. Is this fund right for you? If you're a conservative and low-risk investor happy with moderate equity exposure or retirees seeking regular income, equity savings funds can be a good fit. Highlights & trends Performance: This year, these funds almost matched the 11 per cent returns delivered by the market. For retirees enjoying strong returns, it's essential to limit withdrawals to 6 per cent annually. This discipline ensures that excess returns stay invested, acting as a cushion during lean periods and preserving long-term savings. Continued traction: Despite equity savings funds being relatively unknown compared to other counterparts like aggressive hybrid or balanced advantage funds, they more than doubled in assets since March 2023, surpassing Rs 40,000 crore as of September 2024. This growth is attributed to the removal of the indexation benefit on debt funds, enhancing the appeal of equity savings funds for investors seeking moderate equity exposure with favourable tax treatment. Incidentally, September 2024 achieved another feat: it received a net of over Rs 2,000 crore, the highest in the last five years. Trending funds: Funds from ICICI, Kotak, SBI and HDFC remain popular, drawing significant inflows. Notably, these funds make up nearly three-fourths of the entire category's asset base. Category snapshot No of funds 22 Assets Rs 41,104 crore Asset-weighted expense ratio 0.63% Average net equity exposure 27% Avg mid & small-cap as a % of net equity 29% Average top 10 holdings (as % of net equity) 51% Asset-weighted returns 11.01% Average worst 1-yr return in 5 years -10% Average return of top quartile funds 15.41% Average return of bottom quartile funds 8.27% Returns as of November 7, 2024; Rest of the figures as of Sept 30, 2024 Changes in recommendations Fund moved to Buy: HDFC Equity Savings Fund Fund moved to Hold: HSBC Equity Savings Fund Fund moved to Sell: Franklin India Equity Savings Fund Also read: Equity savings funds handpicked by our analysts Funds at a glance Name Rating 3Y SIP returns (%) Risk grade Equity allocation (%) Arbitrage allocation (%) Expense ratio (%) Assets (Rs cr)